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Thursday, July 5, 2012

ObamaCare's Now a Bigger Mess

If the new health care law wasn't enough of a mess before last week's Supreme Court decision, that ruling actually added another layer of cost, complexity and political contentiousness to the bill.

By striking down part of the law that required states to expand their Medicaid programs, the court tossed a very hot potato into the laps of state lawmakers everywhere.

ObamaCare required states to increase eligibility for Medicaid to 133 percent of the poverty line, or roughly $30,000 per year for a family of four. The expansion would also make childless single men (a notoriously high-cost group) eligible for Medicaid for the first time. In all, about 40 percent of all the people projected to gain coverage under ObamaCare would do so via Medicaid.

But this imposed real costs on states. For example, the Medicaid expansion would cost New Jersey taxpayers roughly $35 billion over 10 years, and New Yorkers as much as $52 billion.

Not surprisingly, many states balked — and now the high court has agreed: Congress can't strip all Medicaid funds from states that refuse the expansion, as the ObamaCare law threatened.

So what will state legislators do now?

If they agree to expand their Medicaid programs anyway, they'll be choosing to pile new costs on their state budgets and new taxes on their constituents.

And if a state doesn't expand its Medicaid program, most of those who would've been eligible for Medicaid will now become eligible for subsidies through ObamaCare's health-insurance exchanges. And those subsidies are paid in full by the feds.

Thus, New York, for example, would shift most of that $52 billion in new costs back to the federal government.

Of course, if states do shift those costs back to the feds, that will cause the federal cost of ObamaCare to skyrocket. If every state were to refuse to expand its Medicaid program, the feds would save roughly $130 billion in their share of Medicaid costs in 2014, but would have to pay $230 billion more in new exchange-based subsidies — for a net added cost of $100 billion. And that's just for the first year.